The Canadian Securities Administrators (CSA) has released interim terms and conditions to guide cryptocurrency exchanges and asset issuers on stablecoin investments following its previous decision.
The umbrella regulatory body seeks to clarify the issues raised in its interim approach to “value-referenced crypto assets” popularly referred to as stablecoins.
This year, the CSA reaffirmed its view that several stablecoins may constitute securities or derivatives placing them under the ban on trading cryptocurrencies viewed as securities.
Following widespread uncertainty in the market and several speculations, the Canadian regulator released terms and conditions that would apply to stablecoin issuers and exchanges if they were to carry on their regular activities.
Stan Magidson, the CSA Chair and the of Alberta Securities Commission noted that these regulations aim to protect investors and improve trust in the market
“The transparency of value-referenced crypto assets about the composition and adequacy of their reserves and their governance are critical issues that must be addressed to protect Canadian investors and the integrity of our capital markets.”
Asset reserves top terms and conditions
According to the release, every stablecoin issuer must maintain adequate and verifiable reserves with a qualified custodian for their adopters.
This clause aims to prevent hiccups caused by market volatility or fraudulent activities that can make an asset lose its leg to the underlying currency leading to sharp losses.
Stablecoins are digital assets whose values are backed by an underlying currency, usually the dollar.
As a result of this peculiarity, the values of stablecoins enjoy stability, unlike other cryptocurrencies that are largely volatile.
This makes stablecoin a key asset of investors as they are deployed to act as the bridge in certain decentralized applications (dApps) transactions and a store of value against inflation.
The collapse of the Terra Network and the subsequent implosion of FTX has thickened regulatory efforts on stablecoin and exchanges.
Presently, some exchanges like Binance now issue periodic proof-of-reserves to show user funds are safe and secure.
Governance disclosures
Value-referenced crypto assets and exchanges are now required to publish vital information related to the governance of the platform, tokenomics, and the entire operational mechanisms.
Furthermore, the body of regulators cautioned Canadians that despite these terms and conditions, the market remains risky and the release should not be interpreted as an endorsement of any asset or exchange.
These interim obligations were suggested by market participants in various sectors of the ecosystem with the body making calls for further long-term suggestions and more suitable alternatives for present regulations.
“This interim framework, which we will build upon in the future, sets certain standards to help ensure that investors receive the information they need about the assets they are purchasing, including the risks associated with them,” Magidson added.
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